i4j Summit March 2013Dane Stangler, with Dan Spulber: Demographics and Entrepreneurship
its effects occur. But the economic response is typically more adaptive than demographic determinism would suggest.
The effects of age on entrepreneurship are likely to change in response to economic incentives, which in turn will be affected by the age distribution of the population and other demographic effects. Nevertheless, demographic analysis has the advantage of identifying population trends that may affect individual decision making in the short- and medium-term future. Today’s fertility rate will have an effect for the next two or three decades, as will trends in aging and life expectancy. Demographics help set a country’s social and economic tempo and shape other developments: “Few things influence a population more than its age structure.”
General population aging is one of the most noteworthy demographic trends in America today. The first cohort of the baby boomers turned 65 in 2011, and the last baby boom cohort will turn 65 in 2029. Together with a low fertility rate, this means the general age structure of the United States is shifting—the population pyramid is becoming more of a rectangle. At the same time, that mass entry of people into their older years will likely live longer than any other cohort in American history. For most of the past few hundred years, gains in life expectancy came from combating mortality of children under five years old. In recent decades, such gains have come from extending life at older ages. One consequence of these changes is that the working age population as a share of total population, which was relatively stable from 1980 to 2010, will decline over the next two decades. Articles and books are full of anxiety over these trends. In a forthcoming book, Jonathan Last says forget every other “cliff” the media identifies: “What America really faces is a demographic cliff.” We
will not be able to support ourselves, keep our government solvent (because of the cost of Social Security and Medicare), or defend the country. The United States, in this line of argument, is “declining in the most important sense—demographically.”We do not discount these concerns—a historically unprecedented demographic shift clearly will have far-reaching consequences. Adaptation will be required. In some ways, of course, the United
States is just emerging from a somewhat demographically unique period. Nothing like the baby boom of 1946 to 1964 had occurred in American history before; when baby boomers began entering the labor force en masse in the mid-1960s, they drove a steady rise in the size of the labor force. This helps explain the stability of the working-age population since 1980. This effect was accompanied by rising labor force participation by women and a falling dependency ratio (the number of children and elderly as a share of the working-age population). Meanwhile, immigration
Nicole Maestas and Julie Zissimopoulos, “How Longer Work Lives Ease the Crunch of PopulationAging,”
Journal of Economic Perspectives,
Vol. 24, No.1, Winter 2010.
S. Jay Olshansky et al, “Aging in America in the Twenty-first Century: Demographic Forecasts from theMacArthur Foundation Research Network on an Aging Society,”
The Milbank Quarterly
, vol. 87, No. 4,2009 at: http://www.politico.com/pdf/PPM41_agingsociety_pdf.pdf .
Jonathan V. Last, “America’s Baby Bust,”
Wall Street Journal
, February 2-3, 2012, at:http://online.wsj.com/article/SB10001424127887323375204578270053387770718.html.
“The fundamental conclusion of our study is that, barring a significant increase in labor force participation, population aging will lead to a reduction in per capita consumption.” Louise Sheiner, Daniel Sichel, andLawrence Slifman, “A Primer on the Macroeconomic Implications of Population Aging,” Finance andEconomics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal ReserveBoard, 2007.
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